It is not simply that the little guys choose the wrong trade, there are a number of classic mistakes that are repeated over and over again that mean losing is all but a certainty, leaving the 5% of winners and the professionals to clean up.
This article highlights what we believe to be the top five mistakes that traders make that can be avoided and increase your odds of success dramatically.
1. Not Planning Your Trades
You have to plan where you are going to buy or sell, where to place your stop loss and most importantly where to exit the trade. Then, once the trade is planned and executed, you must show discipline – you made the trade for a good reason with solid justification, so any changes need equally solid justification.
2. Lettings Losses Run and Closing Winners Too Early
Therefore, novice traders tend to let losses run too long, by either widening stops or ignoring signals that the trade is going wrong, in a desperate attempt not to lose money. All that happens is when you do eventually lose, the loss is a huge one.
Learn to take small losses and you won’t ever get smashed by an enormous loss that blows you out of the water completely – the markets will always be there tomorrow, as long as you still have capital, you are in the game.
On the flipside, novices tend to get over excited when their trades move the right way and into a profitable position and the tendency is to close the trade out earlier than planned to “bank” the profit. Of course there are times when this is the right course of action, but if your plan said close out at a certain point, unless something has changed, stick to the plan.
3. Chasing Losses
As we know, the only way to trade is by planning each trade and executing it carefully, jumping back in to the markets after calling a losing trade is NOT going to work.
The best advice is to take a few days out of the markets, regroup and plan your next trade.
We at UKGTE only make about 10-20 carefully planned trades a year as overtrading means more money is lost on commissions and spreads and the likelihood of losing is higher as trades are more frequent.
5. Staking Too Much
If you go seeking the “big win”, more often than not you will end up finding the “big loss” and then its game over.